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Jacksonville officials doubt that pension fund has done its share of sacrifice

Task force leader: Tax increase would be a deal killer

Bob.Self@jacksonville.com--9/25/13--Council president Bill Gulliford during Wednesday afternoon's resumption of the council budget meeting. After a little less than a 12 hour recess, the Jacksonville City Council restarted the budget talks Wednesday afternoon, September 25, 2013. The City Council started meeting Tuesday night, September 24, 2013 to listen to final public comments related to proposed 3013-2014 budget, discuss and vote on a long list of floor amendments. When recess was called at 2:15 am Wednesday morning the council had made it through just over half of the 40 budget amendments. (The Florida Times-Union, Bob Self)

Dede.Smith@jacksonville.com Mayor Alvin Brown's pension reform agreement with John Keane could be introduced to the City Council on Tuesday.

Bob.Mack@jacksonville.com John Keane says pay cuts that will reduce pensions are a big sacrifice by police and firefighters.

As part of its “shared sacrifice” for pension reform, the Jacksonville Police and Fire Pension Fund agreed to return about $33 million City Hall previously paid the fund for pension obligations.

In a preview of the hard questioning a pension package will face when legislation is filed, City Council President Bill Gulliford said he’s not buying the notion that returning the money is shared sacrifice.

“That’s pretty sublime,” Gulliford said. “They’re giving us back our own money. I don’t look at that as having any value as a contribution to ‘shared sacrifice.’ I don’t see where they are sharing anything as a result of that.”

He said the City Council made painful decisions such as layoffs and service cuts in order to balance the budget while absorbing the cost of ever-rising pension contributions, so the pension fund doesn’t deserve any credit for giving money back to the city.

The Jacksonville Civic Council, which is a group of corporate leaders, and the head of a pension reform task force have also questioned whether police and firefighters are sacrificing enough to achieve pension reform — particularly since the agreement would require the city to pay an extra $40 million a year.

John Keane, executive director of the Police and Fire Pension Fund, said the proposed package of reforms would change pension plans for current and future employees, and the pension fund is making a financial commitment as well to help the city fulfill its pension obligations.

“That’s a lot of sharing on our members’ part,” he said.

In regard to transferring the $33 million, he proposed that measure in the “spirit of cooperation” to give the city some budget flexibility in the fiscal year starting Oct. 1.

He said that because the money is sitting in a reserve account, moving it to the city wouldn’t affect the financial health of the pension fund.

“In the wisdom of the City Council, they can apply it in the manner they want to apply it,” he said. “That’s what they’re elected for is to make those decisions.”

The $33 million transfer to the city is part of the much bigger pension reform package that City Council will vote on in the coming weeks.

Mayor Alvin Brown and Keane recently reached agreement on the deal, which could be introduced as legislation Tuesday after the Police and Fire Pension Fund board votes on it.

THE AGREEMENT

The tentative agreement calls for the pension fund to:

■ Transfer the $33 million of city money that’s sitting in a reserve account within the pension fund. Most of that money was contributed by the city in the 2012-13 fiscal year.

■ Turn over to the city about $28 million from another reserve account that has accumulated state tax money called Chapter funds, which are intended for financing new pension benefits but would help pay for existing benefits.

■ Contribute another $7 million to $8 million per year by using Chapter fund allocations received each year from the state. Currently, the pension fund is committing $5 million to $6 million a year from those Chapter funds as part of an agreement that goes through 2030, so the pension fund would be paying a couple of million dollars more each year.

However, the tentative agreement would end all annual contributions of the Chapter fund dollars sooner, probably around 2020. At that point, the state tax money would be available for new pension benefits.

The proposed pension package would authorize creation of a new “share plan” that would allow the pension fund to divvy up Chapter fund dollars and cut checks for current police and firefighters. Some other Florida cities already offer such share plans for police and firefighters.

While Chapter funds are recurring money, the $33 million of city money sitting in a “city budget stabilization account” is a product of the bull market.

Whenever investment returns are higher than anticipated for the pension fund, the city has benefited by getting a portion of those “excess earnings” put into that reserve account.

The city then could tap that reserve account to defray some of the expense of future contributions to the pension fund.

The account only had $6.7 million in it in October 2012, but that had grown to $33 million by the end of September 2013 because it was a strong year of investment returns for the pension fund.

A CHANGE IN STANCE

Keane’s willingness to let City Council use $33 million is a change from his previous stance on using the reserve account money.

In the past, Keane has criticized the city for using that reserve account to pay a portion of the city’s annual contribution to the pension fund, saying the city was using the reserve money to make it possible to cut property tax rates.

“The impact of using that pension fund piggy bank, using pension money to pay the pension-required contribution, that has led us to where we are now,” Keane told a special City Council committee on pensions in August 2009.

He told the committee then that it should create “fiscal straitjackets so that the future money just can’t be so sweet that they want to go over there and get it — just leave it locked up in there.”

City Councilman Stephen Joost, who served on that special committee, said the proposed transfer of the $33 million appears to do what Keane had previously warned against.

“Of course it contradicts what he said in the past, but that’s all part of negotiations and public relations,” Joost said, adding that his role as council member will be to focus on the actual financial impact of the tentative agreement.

‘NOT A CONTRADICTION’

Keane said it’s not a contradiction of his previous position. “Not at all,” he said.

He said his past criticism was based on the city burning through the reserve account without making it clear in the budgeting process that the account was shrinking as fast as it was. He said making the $33 million transfer in the proposed agreement would help create a “positive outcome” for pension reform, and the reserve account then would be “zeroed out” and closed.

Gulliford said the $33 million should go to pay down the pension fund’s $1.65 billion unfunded liability because that’s why the city paid it in the first place.

“What would they do with the money if they didn’t ‘give it to us?’ ” Gulliford said.

He said rising pension costs created enormous pressure on the city’s budget when the Police and Fire Pension Fund’s actuarial report determined the city had to pay $121 million in the 2012-13 fiscal year, compared with about $70 million the year before.

For current fiscal year, the city paid about $144 million to the Police and Fire Pension Fund, and that minimum required contribution is expected to hit $153 million next year.

The tentative pension agreement would require the city to pay an extra $40 million a year above the minimum required by state law, which would be taxpayers’ part of the “shared sacrifice.”

In their initial reactions to the proposed agreement, several council members questioned how the city would pay for that commitment and whether the agreement did enough to reduce the cost of pension benefits for current police and firefighters.

Bill Scheu, chairman of the pension reform task force that introduced the “shared sacrifice” concept, said the tentative agreement fell short by not reducing the 3 percent annual cost-of-living adjustment that current police and firefighters will get on their pensions.

“If I’m on City Council, why am I going to vote for a sales tax increase or a property tax increase if the police and firefighters are unwilling to share the burden?” Scheu said. “To me, that would be a deal-killer.”

Keane said current police and firefighters took pay cuts in recent years that reduced their earnings and will result in a lower pension when they retire, because pensions are based on their final salary amounts.

“That’s got to be part of the discussion,” Keane said. “That’s the shared sacrifice that guy is going to make the rest of his life.”

Police and firefighters also would pay more to the pension plans, going from 7 percent paycheck deductions to 10 percent in phases. New hires would receive greatly reduced pension benefits.

Keane said when that’s combined with the money being committed by the pension fund to help the city, “it looks to me like there’s been a lot of giving on the part of the members.”